Insight and analysis from The Wall Street Journal and Dow Jones team in Brussels

Draining the EU Wine Surplus

A storm in a decanter is emerging in Brussels over the European Union’s policy on winegrowing that is pitting EU institutions, national governments, and farmers against one another.

A report this week from the European Court of Auditors sharply criticized many aspects of the European Commission’s viticulture policy, which was designed both to combat the EU’s enormous wine surplus and encourage the production of grapes that are more saleable overseas.

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To help farmers compete more efficiently in the world wine market, the commission’s agriculture unit awarded funds to help many of them restructure and upgrade their vineyards to the latest winegrowing standards. Simultaneously, other farmers could apply for a program that would pay them to “grub up,” or remove their vines from the ground, to reduce the size of the surplus.

“When the program started in 2008, we had a global wine and wine-grape surplus,” said Mike Veseth, a professor at the University of Puget Sound who has studied the wine industry. “So it really was the case that both reducing the quantity and finding a way to sell what you had was important.”

The key problem is that despite Europeans’ reputation for enjoying a glass at midday—and another two or three at dinner— the continent’s winegrowers now produce much more wine than their fellow citizens want to drink. In France, the annual per-capita consumption of wine has declined almost 40% in the last two decades. Italians drink barely half the amount they did 20 years ago.

All the while, the grapes continue to grow. In 2005, the estimated surplus of wine produced was nearly 15 million hectolitres. And this isn’t Chateau Lafite we’re talking about—most of it is far too low-grade to sell in foreign markets. The result is a complex dilemma for European policymakers: How to prevent a glut in the market while simultaneously encouraging vintners to make wines that will sell?

The commission responded with the aforementioned program, which concluded last year. And according to its officials, the policy has by and large been a success. The latest available data, said spokesman Roger Waite, “proves no ‘structural surplus’ exists.”

The court is not so satisfied. Above all, the report notes, the program reduced the wine surplus by just 56% of its stated goal. One major problem was that those two major aspects of the policy—grubbing-up and restructuring—often counteracted each other. Though grubbed-up vineyards stopped producing wine, many of the modernized ones produced more wine than ever before. In Spain’s Castile-La Mancha province, for example, net yields were 30% higher even with the new grubbed-up acreage.

“The imbalance between production and demand remains the same despite the billions that have been spent,” said court member Harald Wögerbauer.

But the commission responded by saying that merely reducing the wine surplus was not the point of the program. “Our main aim of the reform was to make the sector more competitive,” said Mr. Waite.

On that front, European winemakers have found success for the time being. Exports, which were stagnant in the mid-2000s, have nearly doubled since then, and the EU now boasts a substantial trade surplus in wine.

Even so, the report questions whether the program actually targeted those vineyards best-prepared to maintain Europe’s dominance in the global wine market. The report cited one example from Spain in which a modern 55-hectare farm that grew tempranillo, a grape variety that is now highly popular worldwide, was retired.

“That’s something that would find a ready market in the United States and possibly elsewhere,” said Mr. Veseth. Still, he agrees with the commission’s view of the program’s priorities.

“Speeding the transformation to producing wine grapes and wines of an international quality is a little more important than the grubbing-up issue,” he said.

For all the back-and-forth between the court and the commission, this particular dispute could very well prove a prelude to a greater battle: that of planting-rights liberalization–that will lift many existing restrictions on grape planting–currently scheduled to take effect in 2016. Though the commission still supports the measure, Waite said that it was open for discussion.

“We’re not ruling anything in, we’re not ruling anything out,” he said. “Wine, more than most sectors, is a long-term thing.”

Comments (5 of 6)

They should just get in line for Obama stimulus when it comes back around as the panacea. Funding the Dem convention this year would help their cause with a little good faith investment and don't forget the needs of Chicago.

7:18 am June 17, 2012

VBJ wrote:

Has the EU, which favors alternate fuels, researched the use of the low grade grapes for production of biofuels, fertilizers, textile stains, or any other worthy near market?

10:24 am June 15, 2012

Dan wrote:

I recall the ADM scam: they bought subsidized denatured alcohol from the EU "lake" then brought it into the US to sell it at the ethanol subsidized price. They got busted obviously, but it points out the insanity of the farm subsidies.

4:30 pm June 14, 2012

Anna wrote:

An interesting dilemma for Europe and perhaps something America should be thinking about too.

2:07 pm June 14, 2012

Virginia Cloughter wrote:

I love this piece almost as much as I love drinking -- wonderful work, Mr. Anbinder! Curious to see how this unusual dilemma will be resolved.

About Real Time Brussels

The Wall Street Journal’s Brussels blog is produced by the Brussels bureau of The Wall Street Journal and Dow Jones Newswires. The bureau has been headed since 2009 by Stephen Fidler, who was previously a correspondent and editor for the Financial Times and Reuters. Also posting regularly: Matthew Dalton, Viktoria Dendrinou, Tom Fairless, Naftali Bendavid, Laurence Norman, Gabriele Steinhauser and Valentina Pop.